Standard & Poor's feels Justice's lash, but can the law ever conquer greed?

The DOJ is making headlines with high-profile suits against Wall Street firms, but singling out a few won't fix systemic wrongdoing

• 
• • Heidi Moore
  • guardian.co.uk, Tuesday 5 February 2013 21.16 GMT

Standard & Poor's faces a Department of Justice lawsuit alleging the firm succumbed to conflicts of interest in their ratings for banks of mortgage-backed securities. Photograph: Stan Honda/AFP/Getty Images

 

In politics, public humiliation can often be a useful motivator. Take the Department of Justice, which was hauled over the coals in a recent PBS Frontline documentary on its lack of vigor in Wall Street prosecutions. The DOJ has been on a rampage lately.

The DOJ has been reportedly planning to file charges against the Royal Bank of Scotland, and last night, it filed an actual lawsuit against Standard & Poor's for misrating mortgage bonds before the financial crisis.

The Department of Justice is also getting creative and taking a novel tack. Standard & Poor's and other ratings firms have long maintained that their ratings, which were opinions, were protected under freedom of speech; in essence, you can't kill the messenger. This has proven a bulletproof defense for years.

The DOJ, in its lawsuit, counters that S&P acted as a double agent by allegedly violating its own standards. Ratings firms are paid by banks to rate products created by banks – an obvious conflict of interest in many cases. Standard & Poor's, like other firms, promised objectivity.

Thus the DOJ has alleged that S&P, while purporting to provide objectivity, was working on behalf of banks that needed good ratings for bad mortgage securities. To support this allegation, the DOJ quotes several emails that show S&P fretting over losing business to Moody's.

DOJ v Wall Street: from zero to hero

This rampage is great … directionally. The DOJ generally has to go crawling to Wall Street, tentatively striking deals that won't hurt financial reputations too badly and the bottom line hardly at all.

So, who doesn't love a major character finally overcoming its low self-esteem and owning its power?
In movie terms, this is the equivalent of the nerdy librarian who doffs her glasses and shakes out her hair, at which someone must yell, "Why, Miss Jones, you are magnificent!" It is Beyonce, pointedly filing her nails in the video for "Irreplaceable", squaring her shoulders and declaring, "You must not know about me. You got me twisted." It is Patrick Dempsey growing from spindly tween idol into a silvery heartthrob.


Considering that the DOJ is trying to regain its swagger, it seems churlish to object that it still may not be thinking big enough. And yet …

The DOJ's approach is great, in theory. It's good for a prosecutor's reputation to rake one firm over the coals and humiliate it publicly. But the truth is, the effect is limited. Other firms, rather than looking at the embarrassed firm and thinking, chastened, "there but for the grace of God go I," instead think, "God, glad I'm not like that poor sucker who got caught for doing what everyone does."
The DOJ is the greatest prosecutorial force in the country. It has subpoena power – excellent for commandeering embarrassing financial documents – and just enough resources and publicity power to really strike fear into Wall Street wrongdoers. The SEC is too underfunded; the CFTC has a shorter reach. The DOJ is, in short, the only entity in the country with any hope of accomplishing anything in the way of white-collar law enforcement.

Why 'making an example' doesn't work


There is some method to striking fear into the hearts of villains. For one thing, villains always believe they are exceptional. This is the case on Wall Street as well. Anyone who does anything dodgy involving money is usually pretty self-aware. He never deludes himself into thinking, "Oh, I am not doing anything wrong." He thinks, instead, "The authorities will never be smart enough to catch me."
This is why singling out RBS, or UBS, or S&P, will never have the fearsome deterrent effect that the DOJ really wants. In fact, by going after the firms piecemeal, the DOJ may actually be encouraging future wrongdoers rather than turning them away from crime.

You see, the DOJ is going after one or two firms for actions that were widespread across the industry. Fixing interest rates was the work of thousands of people. It's safe to say that S&P was not the only ratings firm that fretted that it would lose fees if it started downgrading bonds. In fact, S&P, according to the emails provided by the DOJ, frequently worried that it was not keeping up with Moody's.

This is a familiar pattern in Wall Street cases: Merrill Lynch, for instance, packaged all those bad mortgage securities partly because it was trying to outdo the profits of Goldman Sachs.

Wall Street's culture of rule-breaking

The dirty secret of Wall Street is that it delights in evading rules – not just for profit, but also for sport. To keep its skills sharp. The finance industry is full of clever people who love nothing more than finding loopholes to subvert authority, whether of government or of their own head of trading. The reason Wall Street leaders are always yelling about the necessity of teamwork is because acting mostly in one's individual self-interest – and the interest of one's bonus payment – is almost always the rule.

So, yes, this sudden burst of enthusiasm from the DOJ is a great development. There's no question that it's good, for most of the populace, to see one of America's great prosecutorial forces finally pull its act together on one of the defining scandals of our age: the greed – and sometimes fraud – that turned the housing crash into a financial crisis.

Yes, it's late – in fact, it pushes the traditional statute of limitations on such cases – but at least, some of the gears are finally moving. "Wisdom too often never comes, and so one ought not to reject it merely because it comes late," the supreme court Justice Felix Frankfurter once said, and he could have been talking about all these delayed actions.

It's also always fun to participate in the ritual of reading the hilariously self-incriminating internal emails that the DOJ captured. One of the best includes an S&P analyst sarcastically commenting that, after the crisis, the firm looked like something out of the 1980s hapless Wall Street comedy Trading Places:

"You should see how it is here. It's like a friggin trading floor. 'Downgrade, Mortimer, downgrade!'"

Bond ratings now less relevant

Wall Street, of course, didn't need to see these emails to see which way the wind was blowing with the ratings firms. Most banks and trading floors stopped depending on official bond ratings ages ago, even though all the ratings firms retain excellent records on corporate and municipal bonds (in fact, anything that is not mortgage-related).

BlackRock, one of the favorite bond managers of the federal government, has boasted for years that it does its own analysis on potential defaults rather than rely on ratings firms. (BlackRock's founder, Larry Fink, was not coincidentally one of the creators of the mortgage-backed security.) Official ratings are often only a technical requirement, but rarely do many banks or investors rely on them any more – the same way those banks don't rely on the Libor interest rate any more.

Which is why the DOJ should cast its net wider. Ultimately, the DOJ lawsuit against S&P may make a splash, but it probably won't be a deterrent. The only thing that will do that is banks and investors forcing ratings firms to behave differently.

That's easy in times of calm, like now, but much harder in bubble times, when greed rules.

Take the DRS out of the players' hands

Umpires should be empowered to use technology to improve their decision-making

Ian Chappell

January 27, 2013

If the BCCI had more faith in its hand-picked television commentators and allowed them to discuss the DRS on air, it might discover there are some like-minded souls out there - i.e. people who are equally sceptical of the system.

If ever evidence was needed that there are flaws in the Decision Review System, they were amply provided in the SCG one-dayer between Australia and Sri Lanka. With Michael Clarke having used up Australia's sole review, David Warner and Moises Henriques were then ambushed by incorrect umpiring decisions. Both batsmen got healthy inside edges to deliveries but were adjudged lbw.

Those SCG examples contradict the assertion of Dave Richardson, who was the ICC general manager when he spoke to a gathering of Channel 9 commentators at the Gabba prior to the 2009-10 series against West Indies. He told the commentators: "The DRS is designed to eradicate howlers and get the right decision." At the time I thought, how can you guarantee the correct decision will be reached when there are a finite number of unsuccessful reviews?

I suspected the individual aspect of a team game would ensure the bulk of the reviews would be utilised by top-order batsmen. As former Australian prime minister Paul Keating shrewdly observed, "Always bet on self-interest because you know it's a goer."

Little did I realise that the DRS would also become more of a tactical ploy than a review system. In the same way that West Indies in their heyday slowed the over rate down on the odd occasion they were in danger of losing a game, the DRS is often used as an unwarranted trick in strategy. Umpiring decisions and over rates should never be a part of cricket's tactical fabric.

The DRS, in the unreliable hands of players, is being used more for 50-50 decisions than to eradicate howlers. If a team's best batsman is at the crease and the side is in trouble, a review will almost always result - more a case of self-preservation than any highly principled attempt to be a part of improving the umpiring standard.

The constant reviewing of 50-50 decisions can only undermine the confidence of the umpires, and more importantly, is likely to change their decision-making thought process.

There never has been, nor will there ever be, a case where a 50-50 decision causes animosity on the cricket field. Players are conditioned to accept that one day these decisions will go your way and the next they'll go against you. What does cause animosity on the field is the absolute howler that can change the course of a match. Andrew Symonds being given not out to an obvious caught-behind early in his innings and then going on to score 162 not out in Sydney is a classic example of a howler that caused great animosity on the field. It also led to a terse retort from the normally equitable Anil Kumble at the after-match press conference.

One of the founding principles of the game is also flouted when the DRS is put in the hands of players. As kids we were told the umpire is right, so always accept his decision without question.

The DRS also interrupts the flow of the game. Some of the more exciting moments, like the celebration of a crucial wicket or a brilliant catch, are put on hold, never to be recaptured, as the review process grinds to a conclusion. It would be a case of criminal interference to interrupt the celebration of a hat-trick with a torturous review.

Surely it's time to put any review system in the hands of the umpires so that it stops being a tactic, rids the game of the howler, and on most occasions, brings a satisfactory outcome. Trying to devise a system that produces the correct decision is not possible at the moment (and probably never will be) and attempting to achieve that aim robs the game of one part of the delightfully enticing human element.

It's time to seriously rethink the DRS. It's a topic that should involve a lot of discussion and input from ex-players and some robust debate on commentary.

Is Marxism on the rise again?

Why Marxism is on the rise again

Capitalism is in crisis across the globe – but what on earth is the alternative? Well, what about the musings of a certain 19th-century German philosopher? Yes, Karl Marx is going mainstream – and goodness knows where it will end

• 
• • Stuart Jeffries
  • guardian.co.uk, Wednesday 4 July 2012 20.00 BST

A public sector worker striking in east London last year. Photograph: KeystoneUSA-ZUMA / Rex Features

Class conflict once seemed so straightforward. Marx and Engels wrote in the second best-selling book of all time, The Communist Manifesto: "What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable." (The best-selling book of all time, incidentally, is the Bible – it only feels like it's 50 Shades of Grey.)

Today, 164 years after Marx and Engels wrote about grave-diggers, the truth is almost the exact opposite. The proletariat, far from burying capitalism, are keeping it on life support. Overworked, underpaid workers ostensibly liberated by the largest socialist revolution in history (China's) are driven to the brink of suicide to keep those in the west playing with their iPads. Chinese money bankrolls an otherwise bankrupt America.

The irony is scarcely wasted on leading Marxist thinkers. "The domination of capitalism globally depends today on the existence of a Chinese Communist party that gives de-localised capitalist enterprises cheap labour to lower prices and deprive workers of the rights of self-organisation," says Jacques Rancière, the French marxist thinker and Professor of Philosophy at the University of Paris VIII. "Happily, it is possible to hope for a world less absurd and more just than today's."

That hope, perhaps, explains another improbable truth of our economically catastrophic times – the revival in interest in Marx and Marxist thought. Sales of Das Kapital, Marx's masterpiece of political economy, have soared ever since 2008, as have those of The Communist Manifesto and the Grundrisse (or, to give it its English title, Outlines of the Critique of Political Economy). Their sales rose as British workers bailed out the banks to keep the degraded system going and the snouts of the rich firmly in their troughs while the rest of us struggle in debt, job insecurity or worse. There's even a Chinese theatre director called He Nian who capitalised on Das Kapital's renaissance to create an all-singing, all-dancing musical.

And in perhaps the most lovely reversal of the luxuriantly bearded revolutionary theorist's fortunes, Karl Marx was recently chosen from a list of 10 contenders to appear on a new issue of MasterCard by customers of German bank Sparkasse in Chemnitz. In communist East Germany from 1953 to 1990, Chemnitz was known as Karl Marx Stadt. Clearly, more than two decades after the fall of the Berlin Wall, the former East Germany hasn't airbrushed its Marxist past. In 2008, Reuters reports, a survey of east Germans found 52% believed the free-market economy was "unsuitable" and 43% said they wanted socialism back. Karl Marx may be dead and buried in Highgate cemetery, but he's alive and well among credit-hungry Germans. Would Marx have appreciated the irony of his image being deployed on a card to get Germans deeper in debt? You'd think.

Later this week in London, several thousand people will attend Marxism 2012, a five-day festival organised by the Socialist Workers' Party. It's an annual event, but what strikes organiser Joseph Choonara is how, in recent years, many more of its attendees are young. "The revival of interest in Marxism, especially for young people comes because it provides tools for analysing capitalism, and especially capitalist crises such as the one we're in now," Choonara says.

There has been a glut of books trumpeting Marxism's relevance. English literature professor Terry Eagleton last year published a book called Why Marx Was Right. French Maoist philosopher Alain Badiou published a little red book called The Communist Hypothesis with a red star on the cover (very Mao, very now) in which he rallied the faithful to usher in the third era of the communist idea (the previous two having gone from the establishment of the French Republic in 1792 to the massacre of the Paris communards in 1871, and from 1917 to the collapse of Mao's Cultural Revolution in 1976). Isn't this all a delusion?

Aren't Marx's venerable ideas as useful to us as the hand loom would be to shoring up Apple's reputation for innovation? Isn't the dream of socialist revolution and communist society an irrelevance in 2012? After all, I suggest to Rancière, the bourgeoisie has failed to produce its own gravediggers. Rancière refuses to be downbeat: "The bourgeoisie has learned to make the exploited pay for its crisis and to use them to disarm its adversaries. But we must not reverse the idea of historical necessity and conclude that the current situation is eternal. The gravediggers are still here, in the form of workers in precarious conditions like the over-exploited workers of factories in the far east. And today's popular movements – Greece or elsewhere – also indicate that there's a new will not to let our governments and our bankers inflict their crisis on the people."

 Protestors at the Conservative conference last year. Photograph: KeystoneUSA-ZUMA / Rex Features

That, at least, is the perspective of a seventysomething Marxist professor. What about younger people of a Marxist temper? I ask Jaswinder Blackwell-Pal, a 22 year-old English and drama student at Goldsmiths College, London, who has just finished her BA course in English and Drama, why she considers Marxist thought still relevant. "The point is that younger people weren't around when Thatcher was in power or when Marxism was associated with the Soviet Union," she says. "We tend to see it more as a way of understanding what we're going through now. Think of what's happening in Egypt. When Mubarak fell it was so inspiring. It broke so many stereotypes – democracy wasn't supposed to be something that people would fight for in the Muslim world. It vindicates revolution as a process, not as an event. So there was a revolution in Egypt, and a counter-revolution and a counter-counter revolution. What we learned from it was the importance of organisation."

This, surely is the key to understanding Marxism's renaissance in the west: for younger people, it is untainted by association with Stalinist gulags. For younger people too, Francis Fukuyama's triumphalism in his 1992 book The End of History – in which capitalism seemed incontrovertible, its overthrow impossible to imagine – exercises less of a choke-hold on their imaginations than it does on those of their elders.

Blackwell-Pal will be speaking Thursday on Che Guevara and the Cuban revolution at the Marxism festival. "It's going to be the first time I'll have spoken on Marxism," she says nervously. But what's the point thinking about Guevara and Castro in this day and age? Surely violent socialist revolution is irrelevant to workers' struggles today? "Not at all!" she replies. "What's happening in Britain is quite interesting. We have a very, very weak government mired in in-fighting. I think if we can really organise we can oust them." Could Britain have its Tahrir Square, its equivalent to Castro's 26th of July Movement? Let a young woman dream. After last year's riots and today with most of Britain alienated from the rich men in its government's cabinet, only a fool would rule it out.

For a different perspective I catch up with Owen Jones, 27-year-old poster boy of the new left and author of the bestselling politics book of 2011, Chavs: the Demonisation of the Working Class. He's on the train to Brighton to address the Unite conference. "There isn't going to be a bloody revolution in Britain, but there is hope for a society by working people and for working people," he counsels.

Indeed, he says, in the 1860s the later Marx imagined such a post-capitalist society as being won by means other than violent revolution. "He did look at expanding the suffrage and other peaceful means of achieving socialist society. Today not even the Trotskyist left call for armed revolution. The radical left would say that the break with capitalism could only be achieved by democracy and organisation of working people to establish and hold on to that just society against forces that would destroy it."

Jones recalls that his father, a Militant supporter in the 1970s, held to the entryist idea of ensuring the election of a Labour government and then organising working people to make sure that government delivered. "I think that's the model," he says. How very un-New Labour. That said, after we talk, Jones texts me to make it clear he's not a Militant supporter or Trotskyist. Rather, he wants a Labour government in power that will pursue a radical political programme. He has in mind the words of Labour's February 1974 election manifesto which expressed the intention to "Bring about a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families". Let a young man dream.

What's striking about Jones's literary success is that it's premised on the revival of interest in class politics, that foundation stone of Marx and Engels's analysis of industrial society. "If I had written it four years earlier it would have been dismissed as a 1960s concept of class," says Jones. "But class is back in our reality because the economic crisis affects people in different ways and because the Coalition mantra that 'We're all in this together' is offensive and ludicrous. It's impossible to argue now as was argued in the 1990s that we're all middle class. This government's reforms are class-based. VAT rises affect working people disproportionately, for instance.

"It's an open class war," he says. "Working-class people are going to be worse off in 2016 than they were at the start of the century. But you're accused of being a class warrior if you stand up for 30% of the population who suffers this way."

This chimes with something Rancière told me. The professor argued that "one thing about Marxist thought that remains solid is class struggle. The disappearance of our factories, that's to say de-industrialisation of our countries and the outsourcing of industrial work to the countries where labour is less expensive and more docile, what else is this other than an act in the class struggle by the ruling bourgeoisie?"

There's another reason why Marxism has something to teach us as we struggle through economic depression, other than its analysis of class struggle. It is in its analysis of economic crisis. In his formidable new tome Less Than Nothing: Hegel and the Shadow of Dialectical Materialism, Slavoj Žižek tries to apply Marxist thought on economic crises to what we're enduring right now. Žižek considers the fundamental class antagonism to be between "use value" and "exchange value".

What's the difference between the two? Each commodity has a use value, he explains, measured by its usefulness in satisfying needs and wants. The exchange value of a commodity, by contrast, is traditionally measured by the amount of labour that goes into making it. Under current capitalism, Žižek argues, exchange value becomes autonomous. "It is transformed into a spectre of self-propelling capital which uses the productive capacities and needs of actual people only as its temporary disposable embodiment. Marx derived his notion of economic crisis from this very gap: a crisis occurs when reality catches up with the illusory self-generating mirage of money begetting more money – this speculative madness cannot go on indefinitely, it has to explode in even more serious crises. The ultimate root of the crisis for Marx is the gap between use and exchange value: the logic of exchange-value follows its own path, its own made dance, irrespective of the real needs of real people."

In such uneasy times, who better to read than the greatest catastrophist theoriser of human history, Karl Marx? And yet the renaissance of interest in Marxism has been pigeonholed as an apologia for Stalinist totalitarianism. In a recent blog on "the newcommunism" for the journal World Affairs, Alan Johnson, professor of democratic theory and practice at Edge Hill University in Lancashire, wrote: "A worldview recently the source of immense suffering and misery, and responsible for more deaths than fascism and Nazism, is mounting a comeback; a new form of leftwing totalitarianism that enjoys intellectual celebrity but aspires to political power.

"The New Communism matters not because of its intellectual merits but because it may yet influence layers of young Europeans in the context of an exhausted social democracy, austerity and a self-loathing intellectual culture," wrote Johnson. "Tempting as it is, we can't afford to just shake our heads and pass on by."

That's the fear: that these nasty old left farts such as Žižek, Badiou, Rancière and Eagleton will corrupt the minds of innocent youth. But does reading Marx and Engels's critique of capitalism mean that you thereby take on a worldview responsible for more deaths than the Nazis? Surely there is no straight line from The Communist Manifesto to the gulags, and no reason why young lefties need uncritically to adopt Badiou at his most chilling. In his introduction to a new edition of The Communist Manifesto, Professor Eric Hobsbawm suggests that Marx was right to argue that the "contradictions of a market system based on no other nexus between man and man than naked self-interest, than callous 'cash payment', a system of exploitation and of 'endless accumulation' can never be overcome: that at some point in a series of transformations and restructurings the development of this essentially destabilising system will lead to a state of affairs that can no longer be described as capitalism".

That is post-capitalist society as dreamed of by Marxists. But what would it be like? "It is extremely unlikely that such a 'post-capitalist society' would respond to the traditional models of socialism and still less to the 'really existing' socialisms of the Soviet era," argues Hobsbawm, adding that it will, however, necessarily involve a shift from private appropriation to social management on a global scale. "What forms it might take and how far it would embody the humanist values of Marx's and Engels's communism, would depend on the political action through which this change came about."

This is surely Marxism at its most liberating, suggesting that our futures depend on us and our readiness for struggle. Or as Marx and Engels put it at the end of The Communist Manifesto: "Let the ruling classes tremble at a communist revolution. The proletarians have nothing to lose but their chains. They have a world to win."